November Feature Article Employment in New Jersey’s Labor Areas Annual Review and Outlook Series he national and state economic outlooks are both appreciably more positive than at this time last year. As 2009 ends, most experts believe that the economy bottomed out in theT third quarter and that a fragile recovery is underway. The most recent Gross Domestic Product (GDP) estimates support this view. In the third quarter, GDP grew at an annualized rate of 3.5 percent, a marked improvement over the huge losses suffered in the fourth quarter of 2008 and the first quarter of this year. Since then, GDP declined by 0.7 percent in the second quarter and had positive growth of 3.5 percent in the third quarter. Most experts believe that the economy will grow between 2.5 to 3.0 percent in 2010. Personal consumption expenditures in the third quarter were up 3.4 percent, after declin- ing in three of the previous four quarters. A challenge going forward will be to sustain con- sumer spending in the face of some serious obstacles, some of which are discussed below. The outlook for the labor market is far less optimistic. The labor market economy will es- sentially remain stagnant for a while longer. The national unemployment rate is now in double digits for the first time since the 1981-1982 recession. The New Jersey unemployment rate is at the highest level since early 1977. In October 2009, the national unemployment rate increased to 10.2 percent while the New Jersey unemployment rate rose to 9.7 percent. Most experts expect unemployment rates to remain very high through 2010. The recession, the deepest and longest in the post World War II era, has hit the labor market extremely hard. A recovery, at least in the early stages, will continue to be marked by high levels of unemployment. Rutgers Economic Advisory service expects the New Jersey’s unemployment rate to average 9.5 per- cent in 2010 but to decline to 8.5 percent in 2011. High levels of unemployment will restrain any recovery. Unemployed workers and their families do not have the income or confidence to support increased consumer spending. High unemployment will also keep mortgage foreclosures at higher levels and slow the turnaround in residential real estate which is critical for a strong and sustainable economic recovery. Consumer confidence, although still low, has recovered somewhat from the depressed levels of earlier this year. Consumers are more optimistic at this point about the longer term outlook. Improved conditions in both the labor and real estate markets are key to increased consumer confidence and a stronger recovery. Consumers at present are more optimistic about longer term prospects. The labor and housing markets are depressing the consumer’s view of the present situation. There are signs of improving conditions in residential real estate. In recent months, both existing and new home sales have been up while the inventory of unsold homes has been de- clining from the high levels of earlier this year. However, there has been no clear pick-up in building permits that would suggest a stronger recovery. The Federal Reserve Board sees an economy that is improving but still has significant slack. Since there is little threat of inflation, the Federal Reserve Board will keep interest rates low for the foreseeable future. In addition, the national and state economies will continue to benefit from stimulus package spending in the New Year. NEW JERSEY ECONOMIC INDICATORS NOVEMBER 2009 The following analyses of New Jersey’s regions and labor areas were prepared with data available through September 2009 to summarize economic trends in the respective areas dur- ing the first three quarters of the year and are not adjusted for seasonal variations. Unless otherwise noted, all employment data are nine-month averages for the year cited above or are based on comparisons of nine-month averages. Additionally, the analyses include an outlook covering local area industry developments for 2010 which could cause local area economies to show growth patterns that differ from that of the state. Statewide Summary From 2008 to 2009, nonfarm payroll employment in the state declined by 127,000 or 3.1 percent to a level of 3,934,200, based on nine-month averages (January – September). This year’s performance follows a minimal decline of 0.1 percent posted in 2008 as the full effects of the national recession hit the state and its regions. All of the state’s three regions (Northern, Central and Southern) recorded substantial declines in employment. The state’s Northern Region showed the largest numeric decrease from 2008 (-42,700 or -2.2%); however, the area still accounted for nearly half (1,932,400 or 49.1%) of total state- wide employment in 2009. The nine month average employment of 1,015,200 for the Newark/ Union Labor Area in 2009 accounts for the largest employment base of all the state’s labor areas. Over the year the Newark/Union Labor Area had an employment drop of 18,400 or 1.8 percent, the Bergen-Hud- Northern Region son-Passaic Labor Area decreased by 23,600 or 2.6 percent and the -2.2% Warren Labor Area was down by 700 or 1.8 percent. The Central Region with a nine-month average employ- ment in 2009 of 1,240,000 saw its payrolls drop by 39,000 or 3.0 percent from 2008. The Edison Labor Area experienced an employment drop of 33,700 or 3.2 percent since 2008 while the Trenton-Ewing Labor area decreased by 5,300 or Central Region 2.2 percent. -3.0% The Southern Region had the smallest numeric decrease among the state’s three regions (-29,600) but the largest percentage loss (-3.6%) over-the-year. The Camden Labor Area’s employment dropped for the third consecutive year with a decline of 21,100 or 3.9 percent. The Atlantic City Labor Area also showed a de- cline in employment for the third consecutive year (-6,300 Southern Region or -4.2%) as the area’s gaming industry continues to -3.6% suffer from the depressed economy and increased out of state competition. Salem, the smallest labor area in the region and state, was the only area in the state that had an over the year increase (+200 or 0.9%). The region’s two remaining labor areas (Vineland -Millville-Bridgeton and Ocean City) re- corded a combined drop of 2,400 in employment. 2 NEW JERSEY ECONOMIC INDICATORS NOVEMBER 2009 Northern Regional Summary ver the first nine months of 2009, total nonfarm employment in the Northern New Jersey Region reached a level of 1,932,400.O Payrolls were down by 42,700 jobs or 2.2 percent from Newark-Union the same period in 2008. In a similar comparison, statewide em- Labor Area ployment posted a loss of 3.1 percent since 2008. -18,400 or -1.8% The Northern Region job loss was reflected in several private sector industries. Cutbacks in professional and busi- Bergen-Hudson-Passaic ness services (-15,900 jobs), manufacturing (-12,000), trade, Labor Area Warren -23,600 or -2.6% transportation and utilities (-8,900), financial activities Labor Area (-6,800) and construction (-7,700) contributed to the de- -700 or -1.8% cline in employment. These industries are among those that have been most affected by the current national re- cession. The Northern Region, with its close ties to the financial and banking institutions in New York City, has par- ticularly felt the pressures of the financial, credit and hous- ing crises as evidenced by the employment declines across all related industry sectors. The Newark/Union Labor Area experienced an 1.8 percent drop (-18,400 jobs) in employ- ment over the year while the Bergen/Hudson/Passaic Labor Area experienced a steeper payroll decline (-2.6% or -23,600). The Warren Labor Area (Warren County), with its small employ- ment base (37,700 jobs), recorded a 700 or 1.8 percent reduction in payrolls. In the Northern Region, the trade, transportation and utilities supersector has been hit hard in the retail trade, wholesale trade, and transportation and warehousing sectors due to a significant decline in consumer demand. The housing and credit crises have contributed to the downward trend in construction as well as manufacturing with the lessening of demand for the production of building materials. The professional and business services supersector consists of companies that perform activities for other companies. This industry includes employment services which is one of the first areas where employers scale back during an economic downturn. On a positive note and helping to offset overall employment losses, the Northern Region experienced moderate employment gains over the first nine months of 2009 in leisure and hos- pitality (+5,700 jobs), educational and health services (+3,200) and in government (+2,500). Educational and health services continue to generate employment in the health care and social assistance sector despite growing at a slower rate in 2009 than in 2008 (1.1% vs. 2.1%, respectively). Financial difficulties faced by several of the region’s hospitals contributed to the slow growth. Leisure and hospitality employment has expanded with the opening of several restaurants in the region as regional economic developments have helped to generate demand. The immediate outlook for the region is that there could be little or no economic growth throughout the remainder of 2009. If the national, state and regional economies start to emerge from the current economic strains during the coming months, the region most likely will see job losses moderate.